Echo ups stakes in Brisbane battle

A bomb scare stopped work at Sydney’s biggest construction site, Barangaroo, on Monday, but not for long.

The fast-growing towers which are changing Sydney’s skyline are a constant reminder of
James Packer
’s victory last year when the NSW government gave him the green light to build the city’s second casino.

Echo Entertainment
, which owns Sydney’s existing casino, The Star, is determined not to lose the fight a second time round.

Queensland is shaping up as the next battleground in the fight for Asia’s VIP gaming dollars. While the winner will not be known until early next year, Echo has signed up two powerful Asian partners that will bolster its case for developing a casino, hotel and entertainment complex in Brisbane.

Hong Kong-based Chow Tai Fook Enterprises and Far East Consortium will share the capital burden of the multibillion-dollar development plan with Echo under a memorandum of understanding announced on Monday.

This means two of the four consortiums shortlisted by the Queensland government in May to develop the Queen’s Wharf project have forces. The other two are Packer’s Crown Resorts and Shanghai-based Greenland Investment .

This is a much-needed win for Echo, which did not have many of them last year. With Packer moving into its key market of Sydney in 2020, it needs to ensure it can retain a strong presence in Queensland, where it operates three casinos. After a year of management and board upheaval, Echo looks like it has turned a corner since
Matt Bekier
was promoted to chief executive in April. Bekier, Echo’s former finance chief, has driven the push to partner the Brisbane project to share the capital burden as well as the expertise.

This issue had been worrying Echo’s investors since former chief executive John Redmond suggested the company could try and fund the massive project on its own. Redmond quit abruptly in February.

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Echo shares have risen more than 25 per cent since April, helped by a positive trading update last week. Bekier has also been busy beefing up Echo’s executive ranks. He has hired former Crown executive
Greg Hawkins
as managing director of The Star, an important role which has been dogged by controversy since Sid Vaikunta was sacked in 2012. Chanticleer also understands Echo has hired
Josef Seidler
, who is the project director overseeing the redevelopment of Crown’s Melbourne casino. Seidler will be leading the Queen’s Wharf proposal for Echo as well as overseeing the redeveloping of its Jupiters casino on the Gold Coast. Echo is selling its third casino in Townsville. Bekier is also keen to make the most of Echo’s remaining five years in Sydney as the monopoly casino operator. There are plans to inject a further $100 million into The Star with the refurbishment of the Astral hotel, residences and lobby.

Brisbane is shaping up as the main game though over the next six months. It is understood Greenland also approached Echo to co-invest in the project but the Australian casino group opted for Chow Tai Fook and Far East because of their tourism and hospitality expertise and Asian connections. It is unclear if Crown will choose to team up with Greenland, another property developer like
Lend Lease
, or turn its attention elsewhere. There is an argument to suggest Crown has far bigger fish to fry as it expands in Asia and focuses on its key Australian markets in Melbourne, Perth and now Sydney. The Queensland government has indicated it is more than open to the idea of issuing more casino licences, but the Brisbane market would look crowded with two casino operators next door to each other. Echo owns the existing casino at the Treasury site in Brisbane which may be turned into an upmarket shopping centre and integrated into the Queens’s Wharf project under Echo’s plans.

CTF is best known for running the world’s largest jewellery retailer which has a million wealthy Chinese customers on its books. Echo will make sure the Queensland government is aware of its new partners credentials building world-leading convention centres, hotels, retail and car park,

Metcash
is a company in transition and the message after more than a decade of growth is clear: no pain, no gain. The food and liquor wholesaler’s 18 per cent fall in full-year earnings was tipped in March when chief executive
Ian Morrice
warned dividends would also decline as Metcash invests to take on
Coles
and
Woolworths
.

Still, Metcash’s like-for-like supermarket wholesale sales fell a disappointing 2.1 per cent. While it says initial results from pilot programs are encouraging there is some way to go before it can declare a turnaround.

Deflation, rising utility costs, fuel discounting by Coles and Woolworths and consumers seeking cheaper prices mean the business model that underpinned Metcash’s growth for more than a decade no longer works.

Former chief
Andrew Reitzer
is credited for Metcash’s stunning growth since he took the helm of the former Davids Holdings in 1998, quadrupling sales from $3 billion during his tenure. But he left it too late to tackle the structural and competitive challenges facing the company which Morrice has inherited. Morrice is on a mission with a five-year transformation plan. He needs to reverse declining grocery earnings and to do this must get prices down and invest money back into stores. Deutsche Bank says reducing prices by 1 per cent eats into goods and grocery earnings by about $122 million.

Establishing Metcash as a strong third pillar in the Australian supermarket space would benefit consumers but will not be easy. There are also foreign entrants such as Aldi and Costco.

Metcash is the country’s biggest wholesale supplier to independent retailers, which are estimated to have about an 18 per cent market share. It will also seek to bolster its position in liquor and hardware which perform better than the grocery operations.